4Q21
RESULTS
Conference Call
March 29, 2022
(in Portuguese with simultaneous translation into English)
11 a.m. (Brasília) / 10 a.m. (NY) / 3 p.m. (London) Tel: +55 (11) 3181-8565
Reporting StandRaredssul(ts"IF| 4RQS2"1) and accounting practices adopted in Brazil, except where stated otherwise.
International callers:
Tel: +1 (412) 717-9627 | +1 (844) 204-8942
São Paulo, March 28, 2022: CESP - Companhia Energética de São Paulo ("CESP"), (B3: CESP3, CESP5 and CESP6) discloses its results for the fourth quarter of 2021 (4Q21) and fiscal year 2021. The information was prepared in accordance with Interna1tional Financial
CONTENTS
4Q21 Results
Message from Management
Company Profile
Generation Complex
Operating Performance
Commercial Performance
Financial Performance
Debt
CAPEX
Free Cash Flow
Retirement Plan (Vivest)
Contingencies
Regulatory Matters
Subsequent Events
ESG Agenda
Capital Markets
Appendices
3
4
6
7
8
10
17
28
29
30
31
41
44
45
46
48
50
4Q21 RESULTS
CONSOLIDATED FINANCIAL HIGHLIGHTS
(R$ mil) | 4Q21 | 4Q20 | ∆ | 2021 | 2020 | ∆ |
Gross operating revenue
724,952
581,775
25%
2,604,979
2,203,798
18%
Net operating revenue | 638,702 | 500,649 | 28% | 2,292,813 | 1,917,248 | 20% |
Gross operating result
111,423
131,365
-15%
1,307,175
727,606
80%
Cost and expenses | (549,401) | (328,148) | 67% | (973,207) | (1,104,522) | -12% |
204,199
EBITDA
274,183
-26%
1,740,614
1,210,055
44%
Adjusted EBITDA1 | 194,133 | 154,705 | 25% | 841,723 | 1,014,104 | -17% |
Adjusted EBITDA margin
30%
31%
-1 p.p.
37%
53%
-16 p.p.
Net income | (52,165) | 1,595,676 | - | 440,827 | 1,728,762 | -75% |
Net debt
1,508,097
1,216,403
24%
1,508,097
1,216,403
24%
Net debt/EBITDA LTM | 0.9x | 1.0x | -0.1x | 0.9x | 1.0x | -0.1x |
1.2x
Net debt/ adjusted EBITDA LTM
1.8x
1.2x
0.5x
1.8x
0.5x
▪ Net revenue reached R$639 million in 4Q21 (+28% vs. 2020), and totaled R$2.3 billion in 2021, up 20% from 2020, mainly driven by the growth in trading operations by CESP Comercializadora and higher average sales price in the free market.
▪ Adjusted EBITDA of R$842 million in 2021, down 17% from 2020, mainly caused by the impacts of the water crisis, which adversely affected the Company's operating margins during the year.
▪ Operating cash flow after debt service of R$181 million in 4Q21, representing a cash conversion ratio2 of 93%.
▪ Reduction of R$3.1 billion in total contingent liabilities before monetary and interest adjustments in 2021 from 2020, excluding R$586 million in probable contingencies due to the settlement of lawsuits, revisions of estimates based on the progress of lawsuits and favorable court decisions. After monetary and interest adjustments, the reduction was R$1.8 billion and R$419 million, respectively.
▪ Net loss of R$52 million in the quarter, mainly due to higher energy sale during the period and the impact of the adjustment of provision for contingent liabilities and actuarial liability on financial expenses.
1 Adjusted EBITDA excludes allowance for litigation, write-off of judicial deposits and GSF renegotiation net of impairment.
2 Cash conversion ratio = OCF after debt service / Adjusted EBITDA
MESSAGE FROM MANAGEMENT
The year 2021 was highly challenging due to the water crisis yet was marked by many achievements by CESP. We advanced on a series of essential projects to ensure the sustainable future for the business that the Company start to contribute from now on, with the creation of the new company, Auren Energia S.A.
In 2021 we move forward on the management of our energy balance, on our long-term commercial strategy, we continued to show gains in efficiency for the business and we made significant progress in our ESG agenda.
The water crisis had a significant impact on our financial performance in 2021. Like all hydroelectric power generators of SIN, CESP was penalized by the decline in the national hydro production due to the worsening GSF. Nevertheless, we were successful in our commercial strategy, which, in addition to other fronts, involved the advance acquisition of energy on competitive terms to ensure our energy balance for 2021 and 2022.
Although the crisis brought a scenario of more challenging on the energy purchase side, CESP seized the opportunities on the sales side, especially energy sales starting from 2024. During the year, we proceeded with our go-to-market strategy of expanding and diversifying the client base to reduce costs and maximize results.
Another major highlight in 2021 was the management of contingent liabilities. We remain focused on resolving, through court decisions and negotiations, the portfolio of lawsuits in order to reduce risk. We ended 2021 with a reduction of R$1.8 billion, after inflation adjustment, in total contingent liabilities in relation to December 2020, underscoring our portfolio dismantling strategy. The reduction mentioned resulted in a decrease of 24% or R$419 million in 2021, of the contingent liabilities with probable chance of loss, which is the share of the contingent liability that is fully provisioned.
On the operating front, we continued our efforts to increasingly improve the management of our assets despite all the difficulties caused by the water crisis. Also, during the year, the Paraibuna and Porto Primavera HPPs joined the GSF renegotiation, resulting in the recognition of R$782 million as reimbursement and extension of concession period of the power plants by 15 months and 7 years, respectively.
An important fact in 2021 was the approval by PREVIC of the VIVEST pension plan migration process. The migration is in progress and should be concluded in the first half of this year, representing another important initiative in our plan to mitigate Company's actuarial risk.
Our efforts on ESG presented an enormous development. We continued the implementation of CESP's Sustainability Platform based on the Sustainable Development
Goals (ODS) and the materiality matrix. Our focus is on proactive environmental and climate actions, human development specially in the communities that we operate and inclusive growth. As a result, MSCI Inc., the leading ESG risk rating agency, raised our
socio-environmental rating from "BBB" to "A" (on a scale of CCC to AAA), the second upgrade of CESP's rating in less than two years.
While all these fronts were progressing, the Company received from its controlling shareholders a proposal for corporate restructuring to create one of Brazil's largest publicly held electricity companies, which is one more milestone in our transformation process. The proposal was analyzed by an Independent Committee and our Board of Directors defined and approved the exchange ratio in January 2022. The Shareholders Meeting held on February 15, 2022, approved the proposal.
As such, after meeting all applicable legal terms and conditions precedent for the operation, CESP shares were incorporated on March 25, 2022, and now the Company is a wholly owned subsidiary of Auren Energia S.A.
It is rewarding to look back and see what we achieved since the privatization of the Company in 2018. With this sense of accomplishment, we are entering a new phase, ready to continue working and pursuing opportunities that increasingly create more value for our shareholders. We thank all those who accompanied us in this journey and invite you to embark on a new chapter of this successful journey in Brazil's electricity sector.
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CESP – Companhia Energética de São Paulo published this content on 28 March 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 March 2022 10:30:20 UTC.